Frequently Asked Questions

How does the mortgage banker reconcile the investor purchase proceeds with the warehouse loan payoff and the original loan funding?

FirstFunding has the capability to provide you with a reconciliation report showing the investor funds received, the Warehouse Funding Facility repayment, and the net amount deposited into your Mortgage Originator Remainder Account. This calculation compares the amount you receive to the amount projected on your lock confirmation and the actual amount funded by FirstFunding at the closing of the subject loan.

How does the mortgage banker get paid?

As part of your Warehouse Funding Facility setup, FirstFunding will establish a depository account (Mortgage Originator Remainder Account) into which your fees and other income funds will be deposited, after the sale of the loan to the secondary market mortgage investor, and after repayment of the Warehouse Funding Facility advance. You will be permitted to withdraw from this account via check withdrawal on a daily basis if you so choose. The revenues and expenses associated with a given loan transaction are always detailed for the originator in the reconciliation report which is prepared by FirstFunding on each loan when it is sold in the secondary market.

What operational changes when a mortgage broker becomes a mortgage banker?

Very few changes, if any are expected. FirstFunding Warehouse Funding Facilities are designed to allow you to do what you do best…originate mortgage loans. Once you obtain an underwriting “clear to close”, your staff simply places the order with the fulfillment service provider. Thereafter, you can monitor the progress via the internet tracking tool provided by the fulfillment service provider. The tracking tool breaks down each significant step carried out by the fulfillment service provider on behalf of you and FirstFunding up to and through closing, funding and shipping of the loan to the secondary market investor. FirstFunding prepares and distributes reports daily to its customers so that they always know what is on their Warehouse Funding Facility and what has been received. FirstFunding can also provide a reconciliation of the secondary market investor funds received on a given transaction.

How is being a Mortgage Broker different than being a Mortgage Banker?

Mortgage Brokers are simply responsible for the matching of an investor and a mortgage borrower. Mortgage Brokers do not actually fund the loan for their customers. Mortgage Broker customer loans are funded directly from the mortgage investor. Mortgage Bankers not only match mortgage borrowers with the most appropriate loan product (via their investor relationships), they also actually fund the loan to their customer. After the loan is closed and funded, it is sold to the selected investor in a secondary market transaction.

Why is being a Mortgage Banker beneficial?

Mortgage Bankers are generally permitted greater latitude in what must be included in their upfront disclosures to the consumer. This enables many Mortgage Bankers to have more flexible pricing strategies and in the correlating greater control over their revenue stream. Additionally, in many cases, Mortgage Bankers (Correspondents) may be eligible for secondary market mortgage investor pricing which may be better than available to Mortgage Brokers. Similarly, certain secondary market investors employ loan file quality or other incentives for mini-correspondent and correspondent relationships. Mortgage Banking generally requires greater sophistication and/or capital. Therefore, it naturally creates a higher barrier to competition than typically found in Mortgage Brokerage.

What is required to be a Mortgage Banker?

The primary tools needed to become a Mortgage Banker include: Sufficient licensure to permit the origination of mortgage loans as a mortgage banker/correspondent, a FirstFunding Warehouse Funding Facility (Warehouse Line), approval to be a Correspondent by a secondary market investor, and the ability to manage your First Funding Warehouse Funding Facility. Other tasks and adjustments may be necessary in conjunction with the move-up to Mortgage Banking by a Mortgage Broker, but these represent the principal items.

When does the mortgage banker receive money from closing?

As a Mortgage Banker, you generally receive your income at the time a loan is sold to the investor in the secondary market. This is usually only a few days after closing and funding the loan. FirstFunding has found that requiring some level of involvement by a third party fulfillment services provider actually expedites the secondary market sale transaction, which benefits everyone involved.

What does a fulfillment services company do?

To understand that role of the fulfillment services provider, it is often helpful to understand the various tasks that are the responsibility of the Correspondent Originator. These tasks include ALL of the following:

  • Identifying the investor who will be presented the loan for purchase
  • Upfront Disclosures & Quality Control
  • Credit Underwriting
  • Closing Instructions & Document Preparation
  • Settlement Agent Management
  • HUD-1 Review and Approval
  • Closing Management, Confirmation and Compliance
  • Warehouse Funds requests and Settlement Agent Funds Disbursement Authorization
  • Delivery of the closed loan to Investor for purchase consideration
  • Post-closing investor purchase coordination/responses/trailing documents delivery
  • Purchase Advice Delivery to Warehouse Lender

What is the cost?

FirstFunding charges a transaction fee for each loan funding and interest on the outstanding warehouse advance amount. The fees and interest charges from FirstFunding are competitive with (and in many cases lower than) other mortgage warehouse lenders. All of FirstFunding’s fees and interest rates are set forth in our Price Schedule which is available from your FirstFunding Account Executive.

How to get started?

Complete the FirstFunding application and return it to FirstFunding as soon as possible. In certain circumstances, FirstFunding may agree to accept a copy of your complete correspondent lender application relating to an approved secondary market mortgage investor. Contact FirstFunding via telephone or email to find out more about this abbreviated application process.

Who or what helps the FirstFunding customer with training?

FirstFunding will coordinate with you and the approved fulfillment services provider to provide training to you and/or your staff. Our goal is make this transition to Mortgage Banking as simple as possible.

Who does FirstFunding customer call if he/she has a problem?

Fulfillment Services issues must be directed to the approved fulfillment services provider. Funding and Warehouse Funding Facilities matters may be directed to FirstFunding via email or telephone. See the Contact Us page for address, telephone and email addresses.

What is Net Funding and why is it used by FirstFunding?

Net funding is the temporary holding back or “netting” out of identified amounts relative to the loan amount. In other words, it is a temporary offset of amounts that will be paid to or on behalf of one party by the other party when funds are advanced or exchanged. For example; For a given $200,000 loan, the charges and prepaid interest payable the mortgage originator total $2,000. FirstFunding would “net out” the $2,000 from the loan amount and send $198,000 ($200,000 -$2,000 = $198,000) to settlement agent for closing. The originator does not lose the $2,000. The netted $2,000 is counted toward the haircut required by FirstFunding and the originator receives the $2,000 (plus any premium) when the subject loan was sold to an investor in the secondary market.

What is a haircut?

The haircut is the amount of the loan that the warehouse lender requires to be funded by the originator. The “haircut” is frequently expressed as a percentage of the loan amount. For example; a 1% haircut means that the warehouse lender will fund up to 99% of the loan amount (1% + 99% = 100%). As with most warehouse lenders, FirstFunding does generally employ a 1% haircut requirement on all loans. However, this does not mean that the originator has to bring his own additional funds to a given loan closing. Many warehouse lenders including FirstFunding utilizes the net funding of all originator fees and amounts and allows such netted amounts to be counted toward the satisfaction of the haircut requirement. For example; if an originator had origination charges payable from closing, and those origination charges equaled 1% (or more) of the loan amount, FirstFunding would generally consider the 1% haircut requirement to have been satisfied since the origination charges would be “netted” from the loan amount as part of the calculation of funds needed for closing. The originator would receive the cash proceeds from his origination charges (plus any premium) when the subject loan is sold to an investor in the secondary market.

How are the primary and secondary mortgage markets different?

The primary market is where borrowers and mortgage originators come together to negotiate terms and effectuate mortgage transaction. In other words the primary market is where the loan is actually created. Mortgage brokers, mortgage bankers, credit unions and banks are all part of the primary mortgage market. After being originated in the primary mortgage market, most mortgages are sold into the secondary mortgage market thus enabling the originating lender to recycle/reuse the funds to make a new loan to a new borrower. The secondary market is essentially any transaction involving the sale or pledging of a mortgage loan asset other than the primary market transaction that created the mortgage loan asset. The secondary market is where mortgage loans and servicing rights are bought and sold between mortgage originators, mortgage aggregators and investors such as FannieMae, FreddieMac and GinnieMae. A large percentage of newly originated mortgages are sold by their originators into the secondary market thus enabling the cycling of capital relating to mortgage lending. The secondary mortgage market helps to make credit equally available to borrowers across geographical locations.

Isn’t ordering warehouse funds just pushing a button?

No. It is a process that involves considerable review of information from multiple sources and consideration of the acceptability/eligibility of a given loan as warehouse advance collateral. Once the decision to advance funds has been made, the information must generally be distilled down to a wire initiation request which is the mechanism for creating a wire in the Federal Reserve system. It is VERY IMPORTANT to note that once a wire is initiated, no warehouse lender, not even FirstFunding can control how fast funds are recognized by the recipient (usually the settlement agent) in the Federal Reserve system. FirstFunding recognizes the time sensitivity of getting funds to closing and generally all of the above-described tasks occur in a matter of minutes once the formal request (complete with all necessary supporting documentation) is received. It is possible that a question will arise when a request for funds is being processed. It is also possible that transactional volume ebbs and flows will impact the speed of funding request processing. Such circumstances can impact the process of sending warehouse funds to closing, but they are infrequent and FirstFunding generally employs staffing and systems that anticipate normal ebbs and flows and time zone sensitivities.

What is the difference between and investor’s “Best Efforts” and “Mandatory Delivery” pricing?

Best Efforts pricing generally means that the Correspondent Lender has no financial risk in case of non-delivery of the subject loan, however, the Secondary Market Mortgage Investor will usually track and fallout and report upon it via Correspondent Lender scorecard or other similar rating system. Mandatory Delivery pricing generally means that the Correspondent Lender assumes the financial risk of not satisfying the delivery of a given loan, or pool of loans. The financial risk most often manifests itself via a specified penalty or penalty formula which defines the amount that the Correspondent Lender owes the Secondary Market Mortgage Investor in the event that the Mandatory Delivery contract requirements are not met by the deadline specified. Mandatory Delivery mechanisms can be very complex and they can create significant risk for the Correspondent Lender, but they can also be a useful pricing tool for sophisticated Correspondent Lenders.

The settlement agent, escrow agent and the title company and the title insurance company are the same entity, right?

The answer is “sometime, but not most times”. The Settlement Agent is a provider of settlement services. An Escrow Agent is a provider of funds accumulation and disbursement services. The term “title company” is sometimes used to refer generically to the Settlement Agent, the Escrow Agent, and/or the party actually providing the title underwriting services. The title underwriting services include such services as title research and title commitment issuance services. Title underwriting is not necessarily the same entity that provides the actual title insurance coverage. The title insurance company is the party who provides the actual title insurance policy coverage. In most cases, on most loans, one or more of the various title-related entities are independently owned.

The investor is responsible for compliance, right?

For wholesale transactions, the originator shoulders their respective operational compliance risk and the investor shoulders the majority of portion of the transactional compliance risk. For a correspondent transaction, the operational risk AND the transactional risk is shouldered by the Correspondent Lender.

What is Advance Rate? Is this the interest rate on the warehouse monies advanced?

The advance rate is generally considered to be the amount that the warehouse lender is willing to advance on a given loan. It is usually expressed as a percentage of the loan amount. For example; a warehouse lender willing to fund $198,000 for use in the closing of $200,000, the warehouse lender is said to have an advance rate of 99% ($198,000 /$200,000 = 99%). Most warehouse lenders will specify an advance rate in an amount less than 100%. This is to ensure that the originator has some investment in the loan to be warehoused. The difference between the Advance Rate and 100% of the loan amount is usually referred to as the “haircut.”

What is a Mortgage Banker and how is it different from being a Correspondent?

Generally there is not difference in the meaning of these two terms. Most mortgage industry participants considered the term interchangeable.

What is the difference between being a Mini-Correspondent and being a Correspondent?

Generally, mortgage industry participants differentiate Correspondent and Mini-Correspondent based on factors such as; what entity compiled the original loan file vs. what entity performs or is responsible for the credit underwriting on a file, the named payee on the originally closed loan documents, nature of originator’s capacity or participation in the closing and funding of the original loan.

What is Wet Funding?

A mortgage loan origination in which the funds are obtained simultaneous or before all required documentation is completed. In other words, for a “wet” funding, the loan funds are generally to be available at the settlement agent at the time the borrower executes the loan documents. Before electronic signature technology, this was when the borrower signed the loan documents with wet ink – hence the reference to the term “wet funding.” Wet funding rules differ from state to state. Some states do not allow wet fundings. Some only permit them on select types of loans. In a wet-funded purchase money mortgage, the property seller will receive funds right away with the executed documents delivered to the mortgage banker after closing. Wet loans expedite the purchasing process by allowing the sale to occur before the paperwork is delivered to the mortgage banker. However, the added benefit of fast transactions comes at the price of increased risk. Because the seller receives funds before the paperwork is approved, the possibility of fraud and a loan default is greater.

What is Dry Funding?

A mortgage loan origination where the funds are supplied after all of the required sale and loan documentation has been completed and reviewed by the mortgage banker. In the days before electronic signatures, the borrower’s wet ink signature dried during the time the mortgage banker reviewed the executed loan documents – hence the term “dry funding.” For the buyer and seller, dry loans provide more insurance that the transaction will be completed without problems and with less risk of fraud or mistakes. Conditions surrounding the requirements of dry funding differ from state to state. Some states mandate that all loans be funded via dry funding. Others only require certain finds of loan to be dry funded. In a dry-funded purchase money mortgage, the seller will not receive any money until all necessary paperwork has been reviewed by the lending financial institution. Waiting for the documentation to be processed before any funds are transferred ensures the legitimacy of the sale. This process helps to deter fraudulent activities in real estate transactions.

YSP and SRP are the same thing, right?

Yield Spread Premium (YSP) is different than Service Release Premium (SRP). YSP is known and payable at closing. SRP can be estimated by the originator at the time a loan is closed, but the actual SRP amount and its collectability is not known unless and until the loan is sold into the secondary market AND the servicing rights are sold by the mortgage originator (if ever).

What is a Bailee Letter and why is it necessary?

The Bailee Letter is the written documentation between the Bailor (Warehouse Lender on its own behalf or on behalf of itself and the mortgage originator) and Bailee (the secondary market mortgage investor) where the terms of the bailment arrangement are set forth for all parties. The Bailee Letters notifies the Bailee (Mortgage Investor) of the Bailor’s (Warehouse Lender’s) priority interest in a given original residential mortgage loan which is being presented to the Mortgage Investor for review and/or possible purchase. The Bailee Letter is one of the critical components used by a Warehouse Lender to protect its perfected interest in a loan for which it has provided warehouse financing. In the event that the Mortgage Investor does purchase the subject residential mortgage loan, the Bailee Letter usually also serves the Mortgage Investor with instructions on where and how to transmit the funds used to purchase the described residential mortgage loan. Also, if the Mortgage Investor purchases the subject loan, the bailment arrangement terminates when the purchase is completed.

Isn’t the warehouse lender’s collateral the same as the property securing the loan?

They are not the same. The mortgage originator loan is secured by a lien on the real property described in the security instrument. The warehouse lender is secured by a priority lien in the loan receivable evidenced by the loan documents executed at closing.

Is the interest on the loan and the interest charged by warehouse lender the same thing?

The interest on the mortgage loan principal will accrue per the terms set forth in the loan documents executed by the borrower at closing. The interest on the warehouse advance principal will accrue per the terms of the warehouse financing agreements executed between the mortgage originator and the warehouse lender. The mortgage loan documents executed by the borrower and the warehouse financing documents are separate and do not involve the same parties. It is possible that the interest accrual amounts could be identical, but they are not the same.

When does the warehouse lender sell the loan to the investor?

The warehouse lender generally does not sell the loan to the secondary market mortgage investor. FirstFunding has established systems and support mechanisms help facilitate the sale, but the actual sale transaction is conducted by the mortgage originator as correspondent lender selling a loan to the secondary market mortgage investor.

Why do some warehouse lenders charge non-usage fees?

Many warehouse lenders will seek to charge a non-usage fee because they are committing a specified amount of capital to be available to a given mortgage originator. In some cases, non-usage fees can be a percentage of the total commitment or a percentage of the unused portion. Lenders have ben creative in calculating such fees and many originators experience these fees when volume decline. FirstFunding believes that a non-usage fee can be a significant hidden cost. We do not favor hidden costs. FIRSTFUNDING HAS NO NON-USAGE FEES. We maintain multiple capital sources and our position is to be available when you need us. We have never charged non-usage fees and we do not intend to start now.

What is a dwell fee?

A dwell fee is a penalty fee assessed to the mortgage originator because a given loan has become stale on the warehouse facility as an outstanding item. In other words, the warehouse advance for a given loan has been outstanding longer than usually permitted by the warehouse lender.

Why should the lock not expire on same day as closing?

Every loan may be different, but virtually every investor’s loan delivery requirements specify that the loan must be delivered (not just sent) and/or uploaded (not just scanned) by the date on which a rate lock expires. Thereafter, various grace periods may apply in order to provide adequate time for post-closing purchase condition resolution. It requires more than one day to; get the originally executed note back from the settlement agent after closing, prepare and attach the Bailee Letter, transmit and confirm receipt of the originally executed note to the secondary market investor. Consequently, FirstFunding established a rate lock expiration policy that has been emulated amongst many warehouse lenders. FirstFunding’s rate lock expiration policy has prevented many of its customers from extraordinary penalties by Secondary Market Mortgage Investors due to expired locks.

Is the Mortgage Banker’s interest rate lock with the consumer the same as the interest rate lock with the secondary market investor?

They are not the same. The Mortgage Banker’s rate lock with the consumer is a contract between those two parties and it does not involve the secondary market mortgage investor. The Mortgage Banker’s interest rate lock agreement with the secondary market mortgage investor is between those two parties and does not involve the consumer.

Does the Mortgage Banker have to sell the loan?

The Mortgage Banker does not have to sell any subject loan, but they will be compelled to repay the warehouse advance to the warehouse lender if he elects to keep the subject loan instead of selling it. Generally, warehouse lenders are not in the business of providing long-term financing of mortgage loans.

Does the designated investor have to purchase the loan?

Generally, any commitment issued by a secondary market investor is a conditional commitment to purchase, not an unconditional one. Nonetheless, the secondary market mortgage investors are in the business of acquiring mortgage loans and they have no incentive to unnecessarily tarnish a relationship with any mortgage banker. In most cases, the secondary market mortgage investor will extend reasonable efforts to work with the mortgage banker to negotiate the purchase of the loan.

Who is responsible for the content of the settlement statement?

The lender is responsible for the content of the loan settlement statement. Many people mistakenly believe that the settlement agent is responsible for the settlement content. The settlement agent is responsible for constructing the settlement statement following the instructions given by the lender. In the case of a wholesale loan transaction, the lender is the wholesale loan investor. In the case of a correspondent loan transaction, the mortgage banker is the lender.

A bond is required for licensure in certain states. Isn’t this the same bond that may be required by the warehouse lender?

Many people can be confused by the word “bond”. In the case of licensure, the bond is usually one that benefits the state issuing the license to the mortgage originator and it is usually on a form promulgated or otherwise approved by the state issuing the license. Bonds benefiting the states are generally required in lieu of cash deposits for consumer recovery funds and/or audited net worth requirements. Generally the surety bonds issued in connection with a licensure serve as a financial support to pay claims that might be levied by consumer due to acts committed by the licensed party. A bond issued as a condition of licensure and which is issued for the benefit of the license-issuing state are not the same as fidelity bond coverage customarily issued to a mortgage banker.

What experience is required?

FirstFunding has no specified minimum experience requirements when there an application is accompanied by a referral letter from a known secondary market investor’s account.

What are the net worth requirements?

Generally, the minimum net worth requirement for any customer is the greater of;

  • $75,000 (unaudited)
  • The requirements of the state in which the originator is to be licensed as a mortgage banker
  • The secondary market investor’s net worth requirement for correspondent (or mini-correspondent) lenders

Do you require audited financials? Quarterly statements?

No

How do you determine the size of the line?

FirstFunding generally establishes the warehouse facility with its customers based on their estimate of their production ability with the investors on our list of approved investors. We do not generally limit the size of the warehouse facility to a multiple of the customer’s net worth.

Is the line dedicated or non-dedicated?

A FirstFunding warehouse funding facility is not dedicated or limited to a single investor.

What is a Floor Rate?

A floor interest rate or “floor rate” is generally the minimum interest rate for accrual on a credit or funding facility. In the case of warehouse funding, the floor rate will be the minimum rate (annualized) at which interest will accrue on the then outstanding warehouse advances.

What is your floor rate and fees?

FirstFunding’s floor interest rate and fees are clearly stated on printed materials available from a FirstFunding Account Executive. Contact one of our AEs to obtain this information.

Can my advance rate change? Why?

FirstFunding does maintain a graduated, but competitive fee schedule for jumbo loans due to the greater capital requirements and the potential for greater capital risk.

Can I lower my costs?

Yes. There are a number of ways that a customer can reduce FirstFunding’s fees. We offer innovative volume and loan quality incentives. The more a customer does, the more they can potentially save. The better quality the files, the fast they are purchased by the investor, the more the customer can save. Similarly, FirstFunding developed unique fulfillment service levels that enable the customer to choose what service level (and by extension – the associated cost) he wishes to operate with a given secondary investor.

What are the renewal requirements?

Our renewal requirements are fairly simple. We maintain a short list of a few items that we need to renew your facility on its anniversary. We will prompt you for these items prior to the renewal date. Most of our customers are surprised at how simple it is.

Do you have a real time online platform where I can monitor the status of my loans?

Yes – it is called FUEL (FirstFunding Utility and Electronic Ledger). FUEL is entirely internet browser based. It is available 24/7 and can be accessed from anywhere in the world.

How do you reconcile my proceeds?

Our staff performs a reconciliation of EVERY transaction using a proprietary tool within our online platform known as FUEL

Is training provided?

Yes. It is required prior to your first warehouse advance.